Town of Huntington v. Allstate Ins. Co.

Full title: TOWN OF HUNTINGTON PMA MANAGEMENT, Applicants, v. ALLSTATE INSURANCE…

Court: STATE OF NEW YORK SUPREME COURT: COUNTY OF ERIE

Date published: May 18, 2020

2020 N.Y. Slip Op. 34504 (N.Y. Sup. Ct. 2020)

Opinion

Index No. 812446/2019

05-18-2020

TOWN OF HUNTINGTON PMA MANAGEMENT, Applicants, v. ALLSTATE INSURANCE COMPANY ALLSTATE INSURANCE GROUP Respondents

David J. Marello, Esq. Attorney for the Applicants Jonathan H. Dominik, Esq. Attorney for the Respondents

Dennis E. Ward, J.S.C.

NYSCEF DOC. NO. 22 At a term of the Supreme Court of the State of New York, held in and for the County of Erie, Part 12 at the County Courthouse, 25 Delaware Avenue, Buffalo, New York, on the 8th day of January, 2020

DECISION & ORDER

David J. Marello, Esq.
Attorney for the Applicants Jonathan H. Dominik, Esq.
Attorney for the Respondents

The applicants, Town of Huntington and PMA Management, have moved to modify an arbitration decision, pursuant to Article 75 of the CPLR. The dispute involves a loss transfer application between insurance providers. The applicants paid workers compensation benefits to their employee, who sustained injury in a motor vehicle accident in a Vehicle that weighed greater than 6,500 pounds.

In such circumstances, the ordinary "no fault" law of New York is displaced in two ways. First, where a worker is injured in the scope of employment, the employer's workers' compensation policy is deemed primary, and the compensation carrier is required to provide medical and indemnity, rather than such first party benefits being paid by the auto carrier, which would normally pay no-fault benefits (see Insurance Law, §5102[b][2]; 11 NYCRR 65-1.1 ["first party benefits" exclude amounts recoverable on account of workers' compensation benefits]).

Second, where an injury takes place involving one vehicle that exceeds 6,500 pounds, then the party that pays no-fault benefits is permitted to seek recovery of those amounts through a mandatory arbitration process commonly referred to as "loss transfer" (Insurance Law, §5105[a]).

In the subject case, the applicants' vehicle was a bus that weighed greater than 6,500 pounds. The applicants claimed that defendants' insured was solely responsible for the accident and thus sought "loss transfer" of the entire amount paid as first party benefits. Applicants claimed they should be allowed to recover not only the first $50,000 in first party benefits but also the additional $25,000 procured as "optional basic economic loss" known as "OBEL".

After New York's no fault law was initially adopted, it was amended to provide that an auto policy must offer the insured OBEL coverage of an additional $25,000 in addition to the $50,000 required to be provided as "basic economic loss" coverage (insurance Law §5102[a][5]).

The Insurances Law defines "first party benefits" as amounts paid as "basic economic loss" (Insurance Law §5102[b]). In turn, "basic economic loss" is also defined to include the additional coverage purchased as OBEL (Insurance Law §5102 [a] [5]. First party benefits, therefore, are defined by the statute to include OBEL.

The "loss transfer" section of the Insurance Law provides that what is recoverable in loss transfer is "the amount paid" as "first party benefits" or, in the case of a workers compensation carrier, "benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay" pursuant to Insurance Law 5103(a).

In the subject case, "another insurer" would have been obligated to pay $75,000 of first party benefits. The applicants had obtained no-fault, or first-party, coverage on the subject vehicle including the usual $50,000 plus the $25,000 available in OBEL coverage. Thus, "another insurer" would have been liable, in this case, to pay first party benefits of $75,000.

The parties submitted to the arbitrator the issues of: (1) which driver was responsible for the happening of the accident; and (2) whether the compensation carrier could recover the full $75,000 of first party benefits.

The arbitrator found the defendants' insured 100% at fault for the happening of the accident, but limited the applicants' recovery to $50,000. The arbitrator expressly declined to award the additional $25,000 of OBEL. The reason given by the arbitrator was as follows:

Applicant is a Workers' Compensation insurer and does not provide OBEL coverage. The DFS Office of General Counsel opinion letter of 8/1/2003 only references payments made by the OBEL carrier. There is no case law, statute or regulation that specifically permits a Workers' Compensation Insurer to recover OBEL payments. In this case, there is no reference to OBEL payments being made, only Workers' Compensation payments.

Docket #10.

The arbitrator thus expressly stated that there was "no statute" that expressly permitted a workers compensation carrier to recover OBEL payments.

It is certainly true that insurance Law §5105(a) does not use the phrase "OBEL" or optional basic economic loss. The statute uses the words "first party benefits" and references Insurance Law §5103(a), which creates an obligation for auto carriers to provide "first party benefits". The reader would have to go to the preceding statute, Insurance Law §5102(b) and §5102(a)(5) for a definition of "first party benefits" in order to learn that "first party benefits" include "basic economic loss" and that "basic economic loss" includes OBEL coverage.

The issue in the subject litigation is whether there is a proper legal basis for this court to disturb the arbitration award.

The grounds to "modify" such an arbitration award are extremely limited, as the applicants tacitly admit. Grounds for modification are limited to: a miscalculation of figures or mistake in description of a person, thing or property; an award on a matter not submitted to them; or the award is imperfect in a matter of form, hot affecting the merits of the controversy (CPLR 7511[c]). None of those apply.

The grounds to vacate, similarly, are also very limited (CPLR 7511[b]), and do not, in general, include errors of law.¹

1 Grounds for vacating an award include: (i) corruption, fraud or misconduct in procuring the award; or (ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or (iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or (iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection.

An arbitrator's award generally will not be set aside based on an error of law or fact or misapplication of the substantive law (Matter of Falzone [New York Cent. Mut. Fire Ins. Co.], 15 NY3d 530, 534 [2010]).

However, "an award that is the product of compulsory arbitration . . . must satisfy an additional layer of judicial scrutiny—it must have evidentiary support and cannot be arbitrary and capricious" (Matter of Hereford Ins. Co. v. American Tr. Ins. Co., 174 AD3d 805 [2^nd Dept. 2019]; see also City School Dist. Of the City of N.Y. v McGraham, 17 NY 3d 917, 919 [2011]).

The "applicable standard in mandatory no-fault arbitrations is whether 'any reasonable hypothesis can be found to support the questioned interpretation'" (Hereford at 806, [italics in original], quoting Matter of Fiduciary Ins. Co. v. American Bankers Ins. Co. of Florida, 132 AD3d 40, 46, [2^nd Dept. 2015], quoting Matter of Shand [Aetna Ins. Co.], 74 AD2d 442, 454 [2^nd Dept. 1980]).

An award must be upheld where the arbitrators offer a "barely colorable justification" for the outcome reached (Aftor v. Geico Ins. Co., 110 AD3d 1062, 1064 [2^nd Dept. 2013], citing Allstate Ins. Co. v. GEICO [Govt. Empls. Ins. Co.], 100 AD3d 878 [2^nd Dept. 2012]).

The award may be sustained if it is "supported by a 'reasonable hypothesis' and was not contrary to what could be fairly described as settled law'" (Hereford at 806-807, quoting Matter of State Farm Mut. Auto. Ins. Co. v. Lumbermens Mut. Cas. Co., 18 AD3d 762, 763 [2^nd Dept. 2005], quoting Matter of Motor Veh. Acc. Indem. Corp. v. Aetna Cas. & Sur. Co., 89 NY2d 214, 224 1996]).

Both parties in the subject matter have acknowledged that there is no actual decisional law holding that workers compensation carriers are entitled to loss transfer rights of up to $75,000. At least one other court has sustained an arbitration award that declined to award OBEL amounts, based in part, on the lack of definitive law on the point (see Matter of Technology Ins. Co. v. Allstate Ins. Co., 2019 NY Slip Op 31720(U), 2019 WL 2502842, Index No. 650468-2018 [New York Co. Sup. Ct., June 14, 2019]).

In the subject case, the Arbitrator clearly felt the issue of workers compensation carriers being permitted to recover $75,000 in loss transfer was an unresolved issue and expressly noted the Attorney General opinion that had been submitted was inconclusive on the issue. Inasmuch as the Arbitrator did not go against settled law and provided at least a colorable rationale for his determination, i.e., the unsettled state of the law, the determination does not meet the standard for "arbitrary and capricious" and is therefore sustained.

The court is sympathetic to the problem that loss transfer can only be litigated via arbitration (Insurance Law §5105[b]). Nonetheless, on the record before the court, the Arbitration Decision cannot fairly be characterized as arbitrary and capricious, and the motion to set it aside is, therefore, DENIED. DATED: May 18, 2020

/s/_________

Dennis E. Ward, J.S.C.